GENIUS Act May Influence Do Kwon's Terraform Labs Case

The judge overseeing the criminal case against Do Kwon, co-founder of Terraform Labs, has indicated that the GENIUS Act could potentially influence the proceedings. The GENIUS Act, which stands for the Guiding and Establishing National Innovation for US Stablecoins, is a legislative measure that aims to regulate payment stablecoins. This act was passed by the US Senate on June 17 and is currently awaiting a vote in the House of Representatives before it can be signed into law by the President.

During a status conference held on Wednesday, Judge Paul Engelmayer of the US District Court for the Southern District of New York expressed awareness of the GENIUS Act and its potential impact on Kwon's case. Kwon is facing criminal charges related to the collapse of the Terra ecosystem, which resulted in significant financial losses for investors. The charges include allegations that Kwon misled investors about the stability and functionality of the Terra blockchain and its associated products, such as the TerraUSD (USDT) stablecoin and the LUNA token.

The GENIUS Act, if enacted, could alter the legal landscape for stablecoins and potentially affect the charges against Kwon. The legislation seeks to establish regulations for payment stablecoins, which could influence the legal arguments and outcomes in Kwon's trial. The trial is scheduled to begin in February 2026, coinciding with the expected timeline for the GENIUS Act to become law.

The GENIUS Act's journey through Congress involves several steps. After passing the Senate, the bill is now with the House of Representatives. If both chambers agree on the same text, it will be sent to the President for signature. The President has 10 days to sign the bill into law, excluding Sundays. If the President does not sign it within this period, the bill will become law without the President's signature.

Once the GENIUS Act is enacted, various regulatory agencies, including the Federal Reserve, the OCC, the FDIC, and the CFTC, will have 180 days to develop final rules covering oversight, reserve requirements, audits, licensing, disclosures, and implementation of the law. This regulatory framework could significantly impact the legal strategies and outcomes in Kwon's case.

The collapse of the Terra ecosystem in May 2022 had far-reaching consequences, leading to a loss of $40 billion for investors. The downfall of TerraUSD and LUNA contributed to a broader crypto market downturn and played a role in the collapse of other major players in the industry. Kwon initially resisted extradition to the US, preferring to face charges in South Korea, where penalties for financial crimes are generally less severe. However, the Montenegrin government decided to extradite him to the US, where he is currently in custody awaiting trial.

The potential impact of the GENIUS Act on Kwon's case highlights the evolving regulatory environment for stablecoins and digital assets. As the legal and regulatory frameworks continue to develop, the outcomes of high-profile cases like Kwon's will shape the future of the industry. The trial, set for February 2026, will be closely watched by industry participants and regulators alike, as it could set important precedents for the regulation and oversight of stablecoins and other digital assets.